House prices are becoming more affordable in the UK's most expensive cities

23 August 2019

Despite the improvement, ongoing uncertainty over Brexit continues to weigh on prices, Zoopla says

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Houses are slowly starting to become more affordable in some UK cities, according to new data from Zoopla.

In London, where the average house price is £483,000, buyers need 13.1 times the average London annual salary of £37,000 to buy a property.

While buying a property is still difficult for many in the capital, this takes affordability back to a level last seen in mid-2015.

Oxford and Cambridge, the two most expensive cities outside of the capital, have recorded a similar trend.

Buyers in Cambridge require 12.1 times the average salary of £35,000 to buy a property worth £427,900. Meanwhile, in Oxford, where the average house price is £405,000, you need 11.9 times the average salary of £34,000.

However, some northern cities such as Manchester are becoming less affordable as house price growth is beginning to exceed the rise in wages.

Richard Donnell, research and insight director at Zoopla, says: “Although the likes of London, Oxford, Cambridge are at their most affordable levels in four years, the price to earnings ratio remains well ahead of the 20-year average.

“Some cities to the north of England and Scotland are more affordable now when compared to 2007 but, with more scope for future house price growth, the price to earnings ratio is set to rise slowly in the coming years.”

The southern cities of Bournemouth, Southampton, Portsmouth and Bristol have also seen improvements in affordability.

The figures from Zoopla show that the average value of a property is now 6.7 times the average annual salary – slightly higher than the 20-year average of 5.8.

Over the past 20 years house prices growth has risen at a far faster rate than wages overall, meaning homes have become less affordable for workers.

Overall, there are 12 UK cities where annual wage growth – which is 3.7% - has been higher than house price inflation.

City house price to earnings ratio 

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Most affordable properties

Despite salaries rising at a faster rate than house prices in the south, northern cities are still more affordable.

The most affordable city is Glasgow, where the average cost of a home (£124,800) is 3.7 times the average salary of £33,500.

It is followed by Liverpool, Newcastle and Sheffield, which all had house price-to-earnings ratios below five.

Mr Donnell says: “There has been a clear downward trend in the ratio of house prices to average earnings over the last two years.

“However, the scale of improvement is relatively modest. While welcome news, the gap between earnings and prices needs to close further in order to make a material difference to would be purchasers.”

Price to earnings ratio - selected cities

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House price growth

Zoopla says the potential for growth remains in the most affordable cities, but increased uncertainty from Brexit is weighing on market sentiment and headline price growth.

In the past year, house prices across the UK have grown by 2.1% - down from 2.7% a year ago - taking the average price to £220,500.

Edinburgh and Liverpool both recorded the biggest annual house price rises of 5.8%.

Aberdeen saw the largest fall, with prices dropping 4.8% to £160,000.

Whilst London is the most expensive city at £483,100, house price inflation continues to hover at 0%.

Zoopla noted that market conditions are weakening in Birmingham, with the annual growth rate slowing to 3.5% as demand fails to keep pace with rising supply.

Mr Donnell says: “In cities with attractive affordability there is room for further house price growth so long as mortgage rates remain low and the economy continues to grow and create jobs.

“However, house price growth levels are slowing down and this is likely to build into the autumn until there is greater clarity over the Brexit process and its implications on the economy.”

Comments

Affordable for who?

Affordable for who? - certainly not those on minimum/low wages.

Those people can only dream of affording a place in one of the expensive cities - where they're locked into high rents sometimes with unscrupulous/bad landlords who take advantage that, that is the only way they can afford to stay in that city!

The ratio for lending is the real problem

Seriously ... banks will only lend maximum five times your annual salary. The above clearly shows how this is not doable for most of the UK. Lending rates need to change and people should be assessed according to their financial statements and clear proof of spending history. Going by the current rules, I literally have a third of my salary left over after all expenses and mortage repayments are calculated. Why? In case interest rates go up? I would rather use that extra third towards owing a better property rather than pi$$ing it down the drain each month while living in a tiny run down house that was the best I could afford due to the ratio we have to work with. The entire system is old, archaic and stuck in the same thinking that is causing this epidemic to grow. Employ more humans to deal with humans and we can change this whole system around.

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